Many of the life insurance cases we handle involve disputes regarding who should receive the benefits. Attorney J. Michael Young is a recognized authority in handling such disputes and has published an article regarding Recognizing Life Insurance Beneficiary Disputes to educate other lawyers.
If you believe you have a valid challenge to a beneficiary designation or if you are a designated beneficiary whose status has been challenged, it is very important to consult an experienced attorney as soon as possible. While we are often retained after an interpleader lawsuit has been filed, the earlier the better when analyzing an existing or potential dispute. If you are seeking to challenge a beneficiary designation, it is very important to hire an attorney to dispute the designation in writing before the insurance company pays the policy proceeds.
Life insurance benefits can often be substantial, particular if an employee selects optional coverage at several multiples of their salary. Our firm has handled such disputes where the amount of the benefit is in the millions, although it is more common for the benefits to be in the $200,000 to $500,000 range. With such large amounts at issue, it is not surprising that disputes can arise regarding the proper beneficiary. This is particularly the case where human resources departments may not regularly educate employees about updating their beneficiary designation or the proper manner to designate a beneficiary.
Life insurance is considered a non-testamentary asset. The life insurance policy is a contract between the purchaser and the insurance company, for the benefit of a third party. Therefore, the contract generally determines who receives the policy proceeds. However, there are sometimes disputes regarding the validity of particular designations. In such cases, you need an attorney experienced in handling ERISA cases.
Many beneficiary designations are made by policyholders at the time that the application for the policy is completed. A number of issues can arise as the result of changes made to beneficiary designations. Most ERISA plans will specifically outline what steps are required in order to effectuate changes to beneficiary designations. Where such steps are not taken and/or partially taken, disputes can arise as to who is the rightful beneficiary.
Often, a policy holder will get divorced but forget to change the policy designation from the prior spouse. Sometimes it can be proven that the benefits were promised or pledged to someone other than the named beneficiary or the insured made efforts to change the designation. Other times, the named beneficiary may have done something to prevent their recovery of the policy proceeds. In disputed cases, the insurance company will often seek a ruling from a court to determine the rightful beneficiary.
Beneficiary designations can be challenged on the basis that the insured either lacked the mental capacity to make the designation or was unduly influenced to do so. The evidence necessary to prove such claims is very similar to that in a traditional will contest, although the capacity required to make a designation is theoretically greater than the capacity to make a will. Capacity and undue influence claims are possible for ERISA policies because they are not attacks on the designation based on reference to external documents or state laws regarding designations. Instead, they are attacks on the validity of the designation document itself.
Sometimes, the insured will attempt to change a designation, but fails to do so in the manner prescribed by the insurance company. The insurance company may reject the effort and ask the insured to make the designation on the form and in the manner required by the company. Under federal common law, a beneficiary designation may be effective if it is in “substantial compliance” with the insurance company’s procedure, which has been defined as the insured’s doing all that he could reasonably have done to effect a change. Federal courts apply a similar standard in ERISA cases.
In rare occasions, the named beneficiary may be accused of causing the death of the insured. ERISA does not contain an explicit "slayer" exception. However, a court may apply federal common law and rule that a beneficiary who causes the death of the insured should not receive the benefits.